Thank you for your patience. My name is Janice, and I will be your operator for today's conference. I would like to welcome everyone to the Curbline Properties Corp First Quarter 2025 Earnings Conference Call. Now, I will hand the call over to Stephanie Ruys de Perez, Vice President of Capital Markets. Please proceed.

Thank you. Good morning, and welcome to Curbline Properties' first quarter 2025 earnings conference call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at curbline.com, which are intended to support our prepared remarks during today’s call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements. Additional information may be found in our earnings press release and in our filings with the SEC, including our annual report on Form 10-K. In addition, we will be discussing non-GAAP financial measures on today’s call, including FFO, operating FFO and same-property net operating income. Descriptions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today’s quarterly financial supplement and investor presentations. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good morning, and welcome to Curbline Properties’ first quarter 2025 conference call. I want to start by thanking our incredible team for not only completing our successful spin-off almost 7 months ago, but also for completing our second quarter as a standalone public company and achieving results that prove the merits of our unique investment strategy. To that point, we are producing an increasing number of data points that highlight the fact that Curbline is a differentiated growth company capable of generating double-digit earnings and cash flow growth well above the REIT average for a number of years to come. This growth is underpinned by the economics of the convenience property type, which is our exclusive focus, the large opportunity set in front of us, and our unmatched balance sheet that is aligned with the company’s business plan. These ingredients clearly position Curbline to outperform in a variety of macro environments. I’ll start the call by walking through the organic and external drivers of Curbline’s growth profile and business plan and then conclude with some comments on operations and the balance sheet before turning it over to Conor to talk more specifically about the quarter and the increase in expectations for our 2025 outlook. We began investing in convenience assets almost 7 years ago, recognizing the strong financial performance of the small format asset class, both within the retail sector and the broader real estate industry. Tenant retention was high, credit was strong and diversified, and the CapEx load was extremely low on a relative and absolute basis. Retail and service tenants recognize that a significant portion of consumer spending is not only shopping but running errands. These quick trips to a local convenience center are highly profitable for the tenants, but need to be, in fact, convenient. In other words, tenants are willing to pay a premium to secure a superior and convenient location that’s more profitable, and that is driving demand for our simple and flexible spaces. Demand for the right locations in our property type has produced two noteworthy and differentiated outcomes. First, the capital efficiency of the business is superior to many other retail formats and is especially important as capital becomes more expensive and valuable. Desirable small format space not only has high tenant retention rates driving high renewal rates, but is also inexpensive to prepare for the next tenant in the event that there is vacancy. When compared to larger buildings that are generally purpose-built with longer construction periods, the capital efficiency of our simple business is unique. In other words, less capital is needed to generate the same organic growth as the rest of the retail real estate industry and helps generate compounding cash flow growth for Curbline. To that point, in the first quarter, CapEx as a percentage of NOI for Curbline was under 5%, which led to almost $25 million of retained cash flow before distributions despite the fact that NOI was just $28 million. As Curbline scales, this retained cash flow will increase, providing a durable source of capital that is outsized relative to the company’s asset base, boosting earnings and cash flow. The second outcome is that our space is highly liquid due to the fact that the number of tenants that are willing to take a 1,000 to 2,000 square foot shop unit is significantly higher than for purpose-built large-format units. This liquidity allows the property site to keep up with inflation remarkably well, improved tenant diversification, reducing credit risk concentration and fallout, and provides an opportunity to drive rent growth as we seek to maximize rental income given the productivity of the unit size. The liquidity of our units was highlighted by the depth and breadth of first quarter leasing volume with almost 120,000 square feet of new leases and renewals signed, including deals with AT&T, Verizon, Orangetheory, Darden, Five Guys, First Watch, and Sherwin-Williams, among others. In other words, this is a business where we can recapture growing market rents with little landlord capital or downtime since there is a shortage of high-quality convenience real estate in suburban communities and steady demand from a wide range of tenants. All of these factors are evident in Curbline’s operating metrics with our lease rate up 50 basis points sequentially to 96%, among the highest in the sector, 27% blended straight-line leasing spreads and our expectation that same-property NOI growth will average greater than 3% for the 3-year period ending in 2026. Shifting to the investment side, which is the second driver of Curbline’s growth. The positive attributes of capital efficiency and strong top-line growth that I just described led us to explore the addressable market for convenience properties almost 7 years ago. We now own the largest high-quality portfolio of convenience assets in the United States with over 3.3 million square feet of inventory. Despite that fact, what we own today represents less than 1% of the 950 million square feet of total U.S. inventory according to ICSC, providing a significant runway to scale and grow Curbline. In fact, the addressable market is so large that we see a long path of growth where we can stay focused on high-quality convenience centers without the need to broaden our simple and focused strategy. Not every asset we look at will be a fit for Curbline, but we believe there is a significant opportunity set of properties that share common characteristics with our existing portfolio, including excellent visibility, access and compelling economics, highlighted by a broad available tenant universe and limited capital needs. And importantly, that deal flow is less reliant on the health or status of the financing or capital markets, given a significant percentage of volume is driven by life events with demonstrated availability and liquidity through past cycles. For context, each week, our team is reviewing hundreds of millions of dollars worth of deals. While those weekly volumes may rise and fall, the sheer size of the addressable market gives us confidence that there will always be a steady subset of opportunities that do indeed fit our investment criteria. To that point, our original guidance included $500 million of convenience acquisitions for the year, which equates to around $125 million per quarter. We significantly exceeded that pace with over $475 million of acquisitions in the last 9 months. And based on our current pipeline, this momentum is likely to continue in the near term. Specifically, our pipeline today is just over $500 million. This is on top of assets we have closed year-to-date and includes properties under contract or awarded with an executed LOI. The majority of these assets are expected to close late in the second quarter or early third quarter. The acceleration in activity is a function of our marketing efforts as we have seen a larger number of brokers and individual sellers proactively engage with us, a change from the pre-spin environment. The situation allows us to work directly with sellers on a timeline and a structure that works best for both parties and has increased the visibility of our future pipeline of investments. That was a key driver of the first quarter where we acquired 11 properties for just over $124 million, including our largest portfolio to date, a 6-property portfolio in Jacksonville, Florida. Assets continue to be concentrated in the affluent markets that Curbline operates in already, including Phoenix, Houston, and Philadelphia. However, like Jacksonville, we continue to make acquisitions in new wealthy submarkets that share the key characteristics we seek, including our first property in Seattle, which we acquired subsequent to quarter-end and where we hope to scale long-term. Average household incomes for the first quarter investments were nearly $110,000 and a weighted average lease rate of over 95%, highlighting our focus on acquiring properties where renewals and lease bumps drive growth without significant CapEx. Moving to operations. As I previously mentioned, overall demand for available space remains very strong, driven by a mixture of existing retailers and service tenants expanding into key suburban markets, along with new concepts competing for that same space. Activity remains wide in terms of tenants seeking to lease space and includes numerous primarily national service tenants, banks, fitness operators, and quick service restaurants. We have not seen any changes since the start of April in terms of leasing appetite, but do recognize that changes in macroeconomic scenarios will likely have an impact on the type and the demand for space. However, the value proposition of small-format retail with close proximity to wealthy suburban customers remains attractive to a very wide variety of tenants, especially when considering that those businesses pay a relatively small annual occupancy cost due to the small size of the retail suite to have convenient access to those valuable customers. The economics of our business, a high return on leasing capital and the widest pool of tenants to work with, along with significant national exposure position Curbline for absolute and relative success throughout a cycle. Before turning the call over to Conor, I want to highlight one of the key differentiating aspects of the Curbline spin-off, which is our balance sheet. The net cash position at quarter-end matches the business plan with almost $600 million of cash and $1 billion of liquidity at quarter-end. I couldn’t be more optimistic about the opportunity ahead for Curbline and our ability to generate compelling stakeholder value. And with that, I’ll turn it over to Conor.

Thanks, David. I’ll start with first quarter earnings and operations before shifting to the company’s 2025 guidance raise and concluding with the balance sheet. First quarter results were ahead of budget due to higher-than-forecast occupancy, along with higher lease termination and other income. NOI was up almost 9% sequentially, driven by organic growth along with acquisitions. Outside of the quarterly operational outperformance, there were no other material surprises or call-outs for the quarter, highlighting the simplicity of the Curbline income statement and business plan. In terms of operating metrics, as David called out, leasing volume in aggregate was extremely strong, even after adjusting for the growth in the portfolio. And given the current pipeline, we expect another strong quarter in 2Q. However, as I noted last quarter, with this small but growing denominator, operating metrics will remain volatile and be heavily impacted by acquisitions. That said, overall leasing activity remains elevated, and we remain encouraged by the depth of demand for space, which we expect to translate into trailing 12-month spreads over the course of the year, consistent with 2024. It is important to note that CURB’s leasing spreads include all units, including those that have been vacant for more than 12 months, with the only exclusions related to first-generation space and units vacant at the time of acquisition. Same-property NOI was up 2.5% for the quarter, driven in part by better-than-forecast occupancy. Importantly, this growth was generated by limited capital expenditures with first-quarter CapEx as a percentage of NOI of just under 5%. Moving to our outlook for 2025. We are raising OFFO guidance to a range between $0.99 and $1.02 per share. The increase is driven by better-than-projected operations, along with the pacing and visibility on acquisitions that David mentioned, with the top end of the range assuming that deal volume exceeds our initial annual forecast, consistent with the pipeline that David outlined. Underpinning the midpoint of the range is approximately $500 million of full-year investments funded roughly 50-50 with debt and cash on hand, a 4% return on cash with interest income declining over the course of the year as cash is invested and G&A of roughly $32 million, which includes fees paid to SITE Centers as part of the shared services agreement. You will note that in the first quarter of 2025, we recorded a gross-up of $630,000 of additional non-cash G&A expense, which was offset by $630,000 of noncash other income. This gross-up, which is a function of the shared service agreement, nets to zero net income, will continue as long as the agreement is in place and is excluded from the aforementioned G&A target. In terms of same-property NOI, we continue to forecast growth of approximately 2.8% at the midpoint in 2025, but there are a few important things to call out. Similar to our leasing spreads, the pool is growing but small and is comping off of 2024’s outperformance. Additionally, Curbline’s property pool is set annually. So it includes only assets owned for at least 12 months as of December 31, 2024. This results in a larger non-same-property pool, which is roughly one-third of first-quarter NOI and is growing at a faster rate. To highlight this point, the occupancy for the entire portfolio was 93.5% at quarter-end versus the same-property pool of 94.5%. We continue to expect this relative gap to compress in the first half of the year, delivering significant organic growth. Additional details on 2025 guidance and expectations can be found on Page 9 of the earnings slides. In terms of moving pieces between the first and the second quarter, interest expense is set to increase to about $2 million in the second quarter and termination fees are expected to decline to fourth-quarter levels. These two factors reflect the unique capital structure that CURB was spun off with that positions the company to execute on its business plan and differentiates CURB from the largely private buyer universe acquiring convenience properties. Specifically, at quarter-end, the company had $594 million of cash on hand and full availability under its $400 million revolving credit facility. We did fund the $100 million term loan at the end of the first quarter, providing additional liquidity and remain in a net cash position. The execution of the company’s business plan, to David’s point, is expected to lead to significant earnings and cash flow growth for a number of years, well in excess of the average. With that, I’ll turn it back to David.

Thank you, Conor. Operator, we’re available for questions.

Your first question comes from Craig Mailman with Citi. Please go ahead.

Hey, good morning. Just on the acquisitions, congrats on getting that big of a pipeline here. It sounds like it will largely close by the end of the third quarter. You have clearly enough cash to do this in line capacity. How are you guys thinking though about rebuilding the war chest here? I think in the past, you said you could put an ATM in place around October. Just kind of thoughts on kind of funding sources, that cost of capital versus what you’re seeing from a yield perspective in the market.

Hey, Craig. Good morning. It’s Conor here. I’ll start with available liquidity. As I mentioned in my prepared remarks, we expect to fund investments over the course of the year, 50-50 with cash and debt. And the good news is we’re entering the year with a position of balance sheet strength, right? Net cash position, completely unencumbered pool. So we’re looking at a variety of sources, the bank market, the bond market, the insurance market. And it’s fair to assume we’ve got advanced stages in all three kind of paths, and we’ll pick the best approach as we get later in the year. But again, with that kind of balance sheet strength and the available cash on hand, we’ve got time, we’ve got optionality, and we’ll take the best perspective.

Your next question comes from the line of Ronald Kamdem, Morgan Stanley. Please go ahead.

Back to sort of the acquisition pipeline. Obviously, this quarter, there was a larger deal in there. Maybe a little bit more color on the pipeline. Is it granular? Are there some big deals in there? And just sort of what kind of cap rates are we thinking?

Hey, Ron, it’s David. Would you mind repeating that? We just lost the first couple of seconds.

Sorry about that. So the question was on the acquisition pipeline. You had a larger deal in 1Q ‘25. So just wondering if there are other larger deals in the pipeline? And any thoughts on the cap rates that you’re thinking?

Yes. Sure, Ron. The amount of deal flow we look at is, as we mentioned in our remarks, pretty substantial, and the vast majority of it are single asset sellers. There are typically regional owners that may own 2, 3, 4, 5, or 6 assets at a time. But in general, I would say our pipeline is usually going to be made up mostly of single asset purchases and a handful of 2 or 3 packs. That seems to be the case. It may be over time that we find a portfolio that’s a little bit larger, but this asset class tends to be very granular. In terms of cap rates, we’re still blending to around 6.25%. If you look at the past trailing couple of quarters, that can get pretty lumpy. When you get into the individual assets, it can be in the mid-5s and it can be upwards of 7% depending on whether there’s vacancy and what the lease duration looks like on the rent roll, the amount of credit. But in general, we’re still blending to a low 6%.

And then if I could just follow-up just quickly on just a tariff question. Obviously, things have changed since April 2. Just curious if that changes your thinking on underwriting, what sectors you want more exposure to, less exposure to? Just how does that business plan change since April 2?

Yes. I would say that one of the non-changes is the fact that the vast majority of our tenants don’t carry inventory. And so if you go back to what we’ve mentioned in our prepared remarks, shopping centers are for shopping, and that usually involves stores that have inventory, like large discounters or large mass merchants. This business is more of a running errands business. And there are some tenants that have inventory, but the vast majority are service tenants. Some of the ones we mentioned include banks and business operators, UPS stores, and Verizon Wireless. Those are the types of tenants that occupy these spaces because they want to have that quick access to convenience for running errands for the customer. So in general, I would say that the idea that tariffs are causing an increase in inventory costs probably has a lesser impact. I think a prescient question is your other one, which is does it change our underwriting. And I would say that we recognize that both debt and equity seem to be more expensive. And therefore, we ought to respond by making sure that the investments we do make exceed that and make up for that cost of capital. That can show up in cap rates where in some cases, we might be less willing to pay a lower cap rate. On the other hand, market rents are still growing, and the suburban customer is still running errands. And so in many cases, we’re seeing larger mark-to-markets on the in-place versus market rent and that factors into the IRR as well.

Thanks so much.

Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please go ahead.

Hi, good morning. I just wanted to follow-up a little bit on the deal flow and the $500 million under contract and LOI pipeline. Are you able to break out the pipeline between what’s under agreement versus LOI? And can you share how the deal environment just in general has changed, if at all, since the start of April, whether you’re seeing any change at all in conversations with sellers in terms of pricing or willingness to transact just given the market volatility more recently?

Sure. Todd, I’ll refrain from breaking out the under contract versus LOI, and that’s primarily for one reason. That is, even if a property is under contract, there’s usually an out for diligence, and in this business, because a lot of the assets are owned by smaller individual families, diligence is a real workflow for us. There’s a lot to make sure that what we’re buying is institutional quality. And so I think that as we said on our last earnings call, a pipeline is always going to be fairly high, and there are some properties during that time that just don’t make it through the diligence process. But in general, I’d say our closing rate is extremely high. The second half of your question, I just lost.

Just whether or not there is any sort of change at all in sellers’ willingness to transact or any pricing talk as you are kind of working through additional deals moving forward?

Yes. Willingness to sell has been a pretty firm no, and that is because almost everything we look at is a life event. Someone is at that point in life or beyond where they need to sell or would like to sell. And therefore, they are not really timing the market as much as they are timing their point in life as to when they want to sell. So, the inventory seems to be fairly consistent. The pricing conversations have everything to do with who else is in the bidding tent. And if bidding tents stay large, then I think some of those pricing conversations may not change. There has been a lot more institutional interest in the asset class. We have seen more folks getting involved in this asset class. And so competition is still there. So, there have been recent conversations in the last month about what is the right valuation, but I wouldn’t say it’s been long enough to make any changes.

Okay. That’s helpful. And Conor, if I could just ask a quick clarification, you mentioned, I think that same-store growth in the quarter was driven primarily by better than expected occupancy, but same-store occupancy was down sequentially 60 basis points for the commence rate, 80 basis points for the lease rate. Was that due to seasonality and still just better than what you had anticipated, or was that attributable to the change in the same-store pool or something else?

No, Todd. It’s a good question. So, higher than expected occupy means we renewed a couple of tenants over the course of the quarter that we did not expect to or had budget to renew. So, the problem is it’s a small pool, a couple of tenants renewing is a big deal in terms of percentages. And so it was probably 10 basis point, 20 basis point pickup over the course of the year in that regard. In terms of the change quarter-over-quarter, you are correct. We did have a couple of tenants we did not renew. We had a couple of terminations, obviously, higher termination income this quarter as well. So, I would attribute it to a lot of little things, but no kind of one answer I could say that was driving the quarter-over-quarter change.

Okay. Got it. Thank you.

You’re welcome.

Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Please go ahead.

Hey. Good morning. Just a few questions. First, David, just going back to the acquisitions. Yes, I know this has been asked, but if we think about volatile capital markets, there is a bid-ask spread that in normal times is always an art to arrive at and certainly in a disruptive time, especially with increased capital cost or for sellers, their reinvestment options, everything is up in the air. You guys seem pretty confident that your ability to close the existing pipeline and find new deals to put under contract remains pretty much unchanged. And I am just sort of curious, just given all the disruption we have seen, how you guys are still that confident?

Yes. Well, I guess two points, and good morning Alex. Two points on the deal flow. One, I already mentioned that it’s not like elephant hunting where you are waiting and waiting for some very large properties to come to market and a sophisticated institution is deciding when they list that. And as you know, we have sold a lot in the last couple of years. We are pretty knowledgeable that there are times to sell a large asset and there are times not to sell a large asset. But if we look at our supplemental on Page 16 and kind of look at the volume of what we have been buying in the past couple of quarters, the average ticket size is somewhere in the $10 million to $15 million range. And so these smaller properties owned by local investors, given the fact that there is often a change in death in the family or a change in the allocation of their resources, generational changes in desire for ownership, there seems to be much less focus on when it’s the right time to sell relative to capital markets and more to do with personal decisions. So, I do think the inventory is going to continue to be there. I think the important question you asked is about price discovery and whether the bid-ask spread is widening or not. I would certainly assume that if the economy starts to go into a negative position, you would see fundamentals change on occupancy levels or demand for space, and that would certainly help cause a widening of the bid-ask spread. But right now, the operations and the fundamentals are fantastic and leasing volumes are high, renewal rates are high. And so I think sellers and buyers don’t see quite as much risk in the asset class. And so that bid-ask spread is not that wide yet. That doesn’t mean it won’t change over the coming months. But I think in our business, we tend to focus on how fast information is getting out there about the economy. But when you are buying hard assets, that information doesn’t necessarily flow into negotiations within a month.

And Alex, expanding on the first part of Dave’s response, as it relates to financing activity to Craig’s question, it feels like a very different playbook or scenario or outcome versus whether it’s COVID or the GFC in terms of bank availability or liquidity in the sense that banks are open for business today. That could obviously change tomorrow. But I would say the IG market is a great indicator of the general health to date. Again, that could change next minute, next hour, whatever it might be. But again, it feels like maybe the GFC playbook is not appropriate in the scenario, and we will see how it plays out.

Okay. So, David, forgive me, but it does sound like death and divorces are probably pretty good for your business to drum up transaction value.

Yes. At the risk of saying yes.

So, the second question is, you and some of your peers highlight high average household income, the portfolio you bought in Jacksonville, just over $110,000 in average household income. At the same time, some of the restaurants are reporting a slowdown in traffic and you see anecdotal evidence in some different data points about people pulling back on shopping at all levels, absent, I guess, the Uber crowd. So, even $110,000 is still being impacted. How do you guys feel confident that when you say, hey, we have an affluent portfolio and yet we still see nationally that there is an impact in the consumer, they are pulling back on transactions that we thought were used to be sort of for certain as people are trying to save money? How do you still feel confident in saying, hey, we have an affluent portfolio and it’s pretty bulletproof regardless?

Yes. It’s a really good point. I think that comes up a lot because we do highlight average household income. And I guess the real question is why. It’s not because consumer spending is higher and high household incomes and therefore, the tenants pay higher rent or a portion of profits. As you know, ours are fixed rent leases. We really don’t have much in terms of percentage rent. So, the sales volume of the retailers isn’t really what we are angling for. The reason I personally am very focused on household income is more to do with zoning. When you get into wealthy suburban communities and remember that zoning is local, not national or even by the state level, those local zoning boards are not very wild about entitling additional strip center retail. And so it tends to be the higher household suburbs, higher income suburbs tend to have less square footage per capita. And that generally means that there is a scarcity value. And part of the thesis of this asset class is when you lose tenants, because you do lose tenants, when you lose them, it is less expensive and faster to backfill them. And that gets compounded in these higher income suburbs because there is a scarcity value of real estate. So, to me, it’s less about the gross sales volume of that specific retailer. It’s much more about the scarcity value of how much real estate is available.

And Alex, at the risk of stealing David’s normal joke, I mean our restaurants, our fine dining is Five Guys. It’s a different restaurant exposure than white tablecloth fine dining.

Yes. I am not talking fine dining. I am talking like QSR, just some of the traffic trends year-to-date from some of the different operators. So, yes, I think we are talking the same thing. But the zoning point is an interesting one. So, thank you.

Your next question comes from the line of Michael Mueller, JPMorgan. Please go ahead.

Yes. Hi. Just a quick one, sticking with acquisitions for a second, just wondering, are you – have you been thinking at all about changing, I guess, the guidance for the acquisition pace just because it seems like you are seeing a lot of transactions, a lot closing near-term, or are you just really planning on sticking with the about $500 million a year for the next few years?

Hi Mike. Good morning, it’s Conor. So, in 2025, and I will let David speak to out years. In 2025, the midpoint of the range still assumes $500 million for the full year. So, that’s an additional $360 million closing. The top end of the range assumes the pipeline that David alluded to, which is about $500 million closes over the course of the year. So, that would be in aggregate about $640 million. You are correct. We have seen or we have demonstrated over the last 2 years that we can do north of $500 million a year. I think given this is our second quarter as a public company, we feel comfortable maintaining that current range. But you are right, we are seeing enough deal flow and we are demonstrating quarter-after-quarter that there is enough of an opportunity set for us to potentially see that over the longer term. I would just say for now, Mike, it feels like $500 million is a good base case to use. And David, I don’t know if you can expand on that.

I agree. I think in – two quarters into the business, it’s probably prudent to stick with what our original targets were.

Okay. Thank you.

Thanks Mike.

You’re welcome.

Your next question comes from the line of Paulina Rojas with Green Street. Please go ahead.

Good morning. And you mentioned previously that your business would have perhaps quicker and less expensive refinancing, which is by itself a great advantage. But could you elaborate on how you believe your portfolio would perform in a recession or a period of slow growth relative to other strip center formats?

Sure, Paulina and good morning. So, if you look on Page 13 of our supplemental, I think that’s probably a pretty good example. And if you look at the bottom row, if you look at the trailing four quarters, our total leasing volume, which is new leases and renewals. And if you take the first year’s base rent and then you look at it as a ratio with the total leasing CapEx, our business is about 5.5 months to pay back the cost of leasing, and that includes both the renewals and the new leases. But you will also notice that renewals is about 2.5x the amount of new leases. So, my thought is that during a recessionary environment, you would start to see that shift. Maybe you have more vacancy and therefore, your renewals are a little lower and your new deals are a little higher. But if the baseline is a ratio of 2.5:1 and a 5.5 month payback, you are going to end up with something that’s still call it, 8 months, 9 months, 10 months, 12 months, 14 months, that’s probably one-fifth to one-sixth of the payback period that we were experiencing in previous portfolios that had large-format boxes that needed a tremendous amount of reconfiguring. So, I do think that these small fungible spaces that can change user types quickly and cheaply is a lot different than a business where you are buying credit in a purpose-built building.

And Paulina from a credit perspective that we started to have more credit events or bankruptcies, which we have had none in the last year plus. If you look on Page 15 of the supplement, we only have nine tenants with greater than 1% ADR exposure. My guess is a year from now, we will have two or three. And two years to three years from now, we will have one, our largest tenant, which is tough to avoid because they have great real estate. So, from a risk perspective, the odds of one tenant impairing or impacting FFO growth over the course of the year is also materially lower for us versus other retail companies. So, to David’s point, it’s the economics of the business plus the diversification by tenant perspective that really makes us feel a lot better about the ability to grow the portfolio and grow cash flow over the course of the cycle.

Thank you. And then my second question, you have mentioned the strong leasing activity. But have you seen any early signs of tenants experiencing a deterioration in their business or adopting a more cautious stance towards growth? And if so, where are those news coming from?

Yes. Paulina, I would love to be very transparent. It’s honestly been a matter of weeks. So, we just really haven’t seen anecdotal information that’s really worth talking about. There are a couple of conversations that I can see. We had a couple of tenants that did have inventory and their business relied on gaining inventory. Those conversations seem to slow, but they are just offset by service tenants that are looking to access the same small units. So, I guess the amount of anecdotal information we have is pretty limited right now.

Thank you.

Thanks, Paulina.

Please go ahead, Craig Mailman with Citi.

Yes. Thanks for getting me back on. I was going to follow-up and just ask, Conor, the pricing differences between those three sources of debt that you were talking about, kind of what’s the – is there anything meaningful or are they kind of on top of each other?

Hi Craig. Good morning. Apologies for cutting you off there earlier. The pricing rate, I mean, again, at the risk of reiterating my answer, it’s changing by the minute, by the day. I think it’s fair to assume, and this is going to depend on tenor or attachment point depending on leverage to go and secure that is pretty wide in sense is, probably low-5s to high-5s. And there have been points in time over the last two weeks where it’s been north of 6. So, again, I would just come back to my original answer. We are coming into this with a position of strength or from a position of strength, excuse me. We have got a completely unencumbered asset base and we are in a net cash position. So, we can be patient. But I would just tell you, we do still expect to fund half of the 2025 investment volume with debt. And then from there, to your point, we do have access to the ATM and other sources of equity capital starting in October. So, again, we don’t – we are not reliant on equity capital. We have got a great balance sheet. We can be patient, but the kind of pricing or pricing quotes is all over the place in the last month, which is going to make us be patient and make sure we get the right deal done. I don’t know if that answers your question. I apologize.

No, it does. I know it’s tough to get into the basis point differences between the three if everything shifts. I guess if pricing was the same, what capital source would you guys be most interested in, right? Are you guys wanting to do private placements and then be an unsecured borrower longer-term, or do you like the insurance market? Kind of what’s the preference?

Yes, it’s a great question. Look, just as David mentioned, if our average ticket size is about $15 million, we are well suited for the unsecured market, which means likely a private placement start and then you naturally graduate over time to potentially the public bond market. We have been a little unique in the sense that we have always liked to have some secured exposure on the balance sheet. Now, that’s usually less than 5%, but there are periods in time where the secured market is more efficient than the unsecured market and vice versa. And so we have always tried to maintain relationships with the life coach for that very reason. All that said, your question is again, most likely its private placement and with a natural kind of graduation over time or shift over time. But don’t be surprised if we have some mortgage debt in the cap structure just because there are times of inefficiency between the two markets.

Okay. That’s helpful. And then apologies, I don’t think anyone asked this, but if they did, you can just tell me. You guys are getting good cash rent spreads. What kind of bumps are you guys pushing through? And has there been any kind of pushback on that side of the leasing equation?

I would say, Craig, in general, the bump question when you are dealing with tenants is always combined with what is the starting base rent and how much capital is being put in. So, net-net, all those conversations, in general, when we deal with small shop tenants, we are looking for 3% bumps. There are some new deals that are done with large national tenants that are still 10% every 5%. And there might be reasons why that is acceptable to us. But in general, the shop leases are done with 3% annual increases.

Are you guys trying to push to get closer to 4%? Is that possible? I am just trying to think of part of the benefit of this asset class, the low CapEx, but also the potential for same-store. You guys have said above 3%, but like is there a way to differentiate yourself where you guys put up 4% to 5% same-store by changing the structure because you don’t have to worry about, obviously, the low bumps of anchors?

Yes. Well, I will go back to the same comment before that the tenants – even local tenants have Microsoft Excel. So, when they do a net present value calculation, and the bumps and the starting rent both calculate into that. Sometimes if you are looking at a tenant that you think will grow over time in their sales, you might want to start with the lower rent and have a 5% annual bump. And there have been situations like that. But generally, the higher credit sophisticated tenants, the purpose of that rent is to be a little bit higher than inflation but start at a market rent that you think is achievable for them. I would say that when we are talking about rent bumps, it’s a relatively small number of leases relative to the entire portfolio. A lot of our growth over time is simply mark-to-market. And one of the benefits of this business is that the weighted average lease term is lower, is smaller than in a large anchored portfolio. So, when you have a mark-to-market and a lower wall, you are more likely to capture that mark-to-market, and that’s a big piece of what’s going to drive the same-store numbers.

Yes. And Craig, to that point, I mean our 2024 number was 5.8%. This portfolio, to the genesis of your question, is very capable of doing north of 3%. And the biggest piece that intrigued us, to David’s point and multiple responses though, is the capital needed to generate that. So, even if we are doing a similar same-store number to the peer group, the capital needed to generate that, in our view, is less than a third. That’s the biggest differentiator. So yes, we can do north of 3%. Yes, we have proven that in 2024. But that capital piece, I would just reiterate or flag for you is a critical kind of differentiator for us versus peers.

That makes sense. Just one last housekeeping, did you guys change the bad debt reserve embedded in guidance? I think it was 55 basis points last quarter.

No, we did not, so unchanged. And to my earlier response, I think it’s following that, we have had zero credit events year-to-date or last year either.

Great. Thank you.

You’re welcome.

Your next question comes from the line of Floris Van Dijkum with Compass Point Research. Please go ahead.

Thanks. Good morning guys. I know it’s probably too early to talk about the tenants' impact regarding tariffs as you have indicated, and I think that’s on everybody’s minds and recession fears, etcetera. Presumably, there will be a slowdown at some point, but it’s too early to say that at this point. But I am actually more curious on the competition that you are seeing for your acquisitions. And I know we have spoken to a couple of your peers. Most of them have a portion of their portfolio on these kinds of assets. One of your peers has actually been acquiring about $100 million of these assets last year and is continuing to push that. Are you running into other well-capitalized REITs, or is this such a big market that it doesn’t really impact your ability or you’re not really competing with those players?

Good morning Floris, it’s David. So far the competition in the bidding tent is still primarily local private investors. There has been an increase in, I would say, institutional capital that has moved into private funds that are kind of looking at a similar strategy. We have not run into direct large institutions or direct competition against any public REITs.

Great. And maybe a follow-up question. I know the CRO portfolio appears to be on the market again. I don’t think it’s going to be of interest to any REITs with the management contracts in place. But maybe can you comment, is that – what do you think that’s going to mean in terms of a marker for value potentially? And what do you think the appetite is there? And maybe also talk about – because I think you mentioned your portfolio is now the largest. How does that portfolio compare in size relative to what you now have assembled?

Yes. And they are great questions, Floris. I mean the reality is, it is a private portfolio. It does not have published information. And so I hate to even speculate on size, quality or outcome. I will say that what we are interested in is the simplicity of our business, which is we buy each building that we want to, and we ignore those that we don’t. We want them to be simple. We prefer not to have a joint venture. We want to manage our own destiny and build a portfolio, construct a portfolio over time that we are really happy with. And that is one of the huge benefits of being able to handpick assets one or two or three at a time. But there are other great portfolios out there in the country. They may or may not be targets for us. But with 950 million square feet of inventory in the U.S., it’s a pretty deep pool to be shopping in. So, I don’t think we are forced into looking at things that may not be a threat.

Thanks, David.

Thanks Floris.

I will now turn the call back over to David Lukes, CEO, for closing remarks.

Thank you all for taking the time to join our call, and we will speak to you next quarter.

Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.